Did you know that Hong Kong’s status as a free port means most goods enter duty-free, but four specific commodities face substantial excise duties? For businesses dealing with alcohol, tobacco, fuel, or industrial chemicals, navigating Hong Kong’s excise duty framework is essential to avoid severe penalties and ensure smooth operations. This comprehensive guide breaks down everything you need to know about compliance with the Dutiable Commodities Ordinance in 2024-2025.

Hong Kong’s Excise Duty Framework: A Balanced Approach

As one of the world’s premier free ports, Hong Kong imposes no general tariffs on imports, maintaining its competitive advantage in international trade. However, the government strategically levies excise duties on four specific commodity categories under the Dutiable Commodities Ordinance (Cap. 109). This carefully balanced approach allows Hong Kong to generate revenue while supporting its position as a global trading hub.

The Customs and Excise Department (C&ED) serves as the primary enforcement authority, responsible for revenue protection, licensing, compliance monitoring, and enforcement actions. For businesses engaged in importing, exporting, manufacturing, or storing dutiable commodities, understanding this regulatory framework is not just good practice—it’s essential to avoid substantial penalties and ensure smooth operations.

The Four Dutiable Commodities

Under Cap. 109, only these four categories are subject to excise duty:

1. Liquor: Alcoholic beverages with strength exceeding 30% by volume at 20°C
2. Tobacco: Cigarettes, cigars, Chinese-prepared tobacco (excluding smokeless tobacco and alternative smoking products for duty purposes)
3. Hydrocarbon Oil: Petrol, diesel, biodiesel, and other motor fuels
4. Methyl Alcohol: Industrial and commercial methyl alcohol and admixtures

Alcohol Excise Duties: The 30% Threshold Rule

Hong Kong’s alcohol duty system is remarkably straightforward, centered around a single threshold that determines whether duty applies. This simplicity supports Hong Kong’s position as a major wine trading hub while ensuring revenue collection from higher-strength spirits.

How Spirits Duty is Calculated

For liquor above 30% alcoholic strength, duty is assessed based on the value of the goods, defined as the normal price the goods would fetch at the relevant time on sale in the open market between independent buyer and seller.

Tobacco Excise Duties: Substantial Rates and Strict Enforcement

Tobacco products face some of the highest excise duties in Hong Kong, reflecting public health objectives while generating significant government revenue. The 2024-2025 rates represent continued efforts to discourage smoking while combating illicit trade.

Special Measurement Rules for Cigarettes

Length-Based Calculation: A cigarette measuring more than 90mm in length (excluding filter or mouthpiece) is treated as multiple cigarettes. Each additional 90mm or portion thereof counts as a separate cigarette for duty purposes.

Enhanced Penalties: 2024-2025 Legislative Changes

Recent amendments to tobacco control legislation have substantially increased penalties for non-compliance, reflecting Hong Kong’s intensified efforts to combat illicit cigarettes and protect public health.

Key Enforcement Enhancements

• Organized Crime Provisions: Tobacco offences are now listed under Schedule 1 to the Organized and Serious Crimes Ordinance (Cap. 455), enabling courts to confiscate crime proceeds and impose enhanced sentencing
• Burden of Proof Shift: Cigarettes sold below the tobacco duty amount must be proven to be duty-paid by the seller
• Digital Enforcement: Implementation of smart tools for issuing Fixed Penalty Notices (FPNs) to streamline procedures and enhance data accuracy
• Interdepartmental Cooperation: Enhanced collaboration between C&ED and other law enforcement agencies

Hydrocarbon Oil and Methyl Alcohol Duties

Hydrocarbon Oil Duty Rates

Hydrocarbon oils include petrol, diesel, biodiesel, and other motor fuels. Specific duty rates vary depending on the type and intended use:

Methyl Alcohol Duty Calculation

Duty on methyl alcohol and admixtures containing methyl alcohol is calculated using a two-component formula:

• Base Rate: HK$840 per hectolitre (measured at 20°C)
• Additional Rate: HK$28.10 per hectolitre for every 1% by which alcoholic strength exceeds 30% by volume

Mandatory Licensing Requirements

Under the Dutiable Commodities Ordinance, obtaining the correct license from the Customs and Excise Department is mandatory for any business involved with dutiable commodities. Operating without the proper license can result in severe penalties, including prosecution and confiscation of goods.

How to Apply for Licenses

All license applications must be submitted through the Dutiable Commodities System (DCS) online portal:

Removal Permits and Duty Payment Process

A Removal Permit (also called Dutiable Commodities Permit or DCP) is required for each individual shipment of dutiable commodities. This permit authorizes the removal of goods from the importing carrier or bonded warehouse and triggers the duty payment process.

Step-by-Step Duty Assessment Process

1. Step 1: Importer submits permit application with required documentation through the DCS portal
2. Step 2: C&ED assesses duty based on commodity type, quantity, and declared value
3. Step 3: Importer pays the assessed duty amount through approved payment methods
4. Step 4: Removal permit for duty-paid goods is issued electronically
5. Step 5: Goods can be released from carrier or warehouse upon presentation of the valid permit

Bonded Warehouse Operations: The Open Bond System

Hong Kong operates under an Open Bond System (OBS), where no Customs officers are permanently stationed at bonded warehouses for real-time supervision. Instead, C&ED maintains control through regular audits, compliance checks, and electronic monitoring via the Dutiable Commodities System.

Key Requirements for Warehouse Operators

• Obtain a warehouse license from C&ED before commencing operations
• Furnish opening hours schedule when submitting license applications
• Notify C&ED in writing 4 hours before any change to opening hours
• Ensure safekeeping of all dutiable goods and maintain accurate inventory records
• Comply with all conditions imposed on the warehouse license
• Prepare for regular excise audits – both scheduled and unannounced

Duty-Free Concessions for Passengers

Passengers aged 18 or above entering Hong Kong are entitled to duty-free concessions for personal use. Understanding these allowances helps travelers avoid penalties for undeclared goods.

Hong Kong’s excise duty framework represents a carefully balanced approach that supports the territory’s status as a premier free port while generating revenue from specific commodities. By understanding your obligations, obtaining proper licenses, maintaining accurate records, and paying duties correctly and promptly, your business can operate compliantly while benefiting from Hong Kong’s strategic position as a global trading hub. When in doubt, consult directly with the Customs and Excise Department or seek professional advice to navigate complex scenarios.